Maloof v Uncle's Joint Pty Limited

[2015] NSWSC 389

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Maloof v Uncle's Joint Pty Limited [2015] NSWSC 389

Hearing dates:

24 March 2015

Date of orders:

31 March 2015

Decision date:

31 March 2015

Jurisdiction:

Equity Division

Before:

Young AJA

Decision:

1. By consent I vary the order made in 360672 on 5 December 2013 in Tiba and Sarah and in 360586 on 19 December 2013 in the Frances proceeding by deleting paragraph 3(i) and inserting instead “(i) the payment of reasonable legal costs incurred in relation to producing documents on subpoena or notice to produce and retaining and instructing solicitors to act in proceedings 2010/36817, 2010/370107, 2013/360586 and 2013/360672”.
2. I dismiss Motion B (filed 20 October 2014) with costs.
3. I modify the freezing order by consent.
4. The costs of Motion A (filed 7 November 2014) be costs in the cause.
5. All the evidence of the defendants is to be served no later than 24 June 2015.
6. The matter is to go to the Registrar’s list on 21 April 2015,
(a) to fix a hearing date with a tentative estimate of nine days, and
(b) to put the matter in for pre-trial directions before the hearing judge some time after 24 June 2015, so the hearing time can be adjusted depending on what comes out of the extra evidence. The normal orders for hearing can then be made, which includes a court book being given to the judge at least three days before the hearing.

Legislation Cited:

Evidence Act 1995 (NSW)
Statute of Uses, 1535 (Imp)

Cases Cited:

Chancery in Topham v Portland (Duke) (1863) 1 De GJ & S 517; 46 ER 205
Kain v Hutton [2007] NZCA 199; [2007] 3 NZLR 349
Kain v Hutton [2008] NZSC 61; [2008] 3 NZLR 589
Re Burton’s Settlement [1955] Ch 82
Re Crawshay [1948] Ch 123
Re Wright [1920] 1 Ch 108

Texts Cited:

GW Thomas, Thomas on Powers (Oxford University Press, 2nd edition, 2012)
JA McGhee (Ed), Snell's Equity (Sweet & Maxwell, 32nd edition, 2010)

Category:

Procedural and other rulings

Parties:

2013/00360586
(Plaintiff) Frances Rita Maloof
(Defendants 1-4) Uncle's Joint Pty Limited ACN 148 176 792, Darren Pernice, Einasleigh Nominees Pty Limited ACN 001 547 575, Albert & May Pty Ltd ACN 001 102 067

2013/00360672
(Plaintiff 1) Tiba Clementine Maloof
(Plaintiff 2) Sarah Mariel Maloof
(Defendants 1-4) Uncle's Joint Pty Limited ACN 148 176 792, Darren Pernice, Einasleigh Nominees Pty Limited ACN 001 547 575, Albert & May Pty Ltd ACN 001 102 067

Representation:

Counsel:
(Plaintiffs) Mr C Harris SC with Mr ME Luitingh
(Defendants 1, 2, 4) Mr PD Herzfeld

Solicitors:
2013/00360586
(Plaintiff) Staunton & Thompson
(Defendants 1, 2, 4) Watson Mangioni Lawyers Pty Ltd

2013/00360672
(Plaintiffs 1-2) Knight Lawyers
(Defendants 1, 2, 4) Watson Mangioni Lawyers Pty Ltd

File Number(s):

2013/00360586; 2013/00360672

Judgment

1. HIS HONOUR: These two pieces of litigation arise out of the trusts set up by and will made by the late Dr CJ Maloof (“the deceased”). They raise almost identical issues and the motions filed in each which I am presently considering may conveniently be dealt with together.

2. Dr Maloof had 8 children. Three of these are the present plaintiffs, Frances, Tiba and Sarah (to whom I will refer as “the three”). The other five (to whom I will refer as “the five”) are defendants. The deceased also had a brother, Peter, who features prominently in these reasons. Peter died on 1 October, 2013. For convenience, not intending any disrespect, I will refer to people by their first names.

3. Whilst I am identifying the actors in the present litigation, I must note that Albert & May Pty Ltd (“A & W”) is a company whose current directors are Clement George Maloof, Helen May Pernice, Alberta Jane Rashid, Anthony Joseph Maloof. A & W is the fourth defendant.

4. The first defendant, Uncle’s Joint Pty Ltd is or purports to be the trustee of the CJ Maloof Family Trust (“the family trust”). Its shareholders are the five.

5. The second defendant is Darren Pernice, the husband of Helen May Pernice.

6. The plaintiffs say that the principal asset of the Family Trust is its 75% shareholding in A & W. The other 25% is held by the executors of the deceased.

7. Einasleigh Nominees Pty Ltd is the third defendant.

8. Frances and Tiba have each filed statements of claim alleging that the three rather than the five are entitled to exercise control over the two family trusts of the deceased known as “The CJ Maloof Family Trust” and the “Einasleigh Trust.”

9. I will need to consider the deeds constituting those trusts in some detail shortly. However, these reasons deal with two notices of motion, viz:

A   That filed 7 November 2014 by the first, second and fourth defendants seeking orders preventing the plaintiffs from relying on certain matters; and,

B   That filed 20 October 2014 by A & W seeking vacation or relaxation of certain freezing orders made by consent on 5 December 2013 and varied on 19 December 2013.

10. I will deal with them in that order, even though Motion A was the second one filed.

11. I received written submission from Mr C Harris SC who appears for Frances and who, with Mr M Luitingh, appears also for Tiba and Sarah, and from Mr PD Herzfeld of counsel who appears for defendants one, two and four. (These are the active defendants and, for convenience I will hereafter refer to them simply as “the defendants”). I heard oral submissions from the same counsel on 24 March, 2015. Time ran out for giving reasons on that day. I indicated that my then thoughts were that both notices of motion should be dismissed, but stood the motions over to this afternoon to give these reasons and then to give directions for the ongoing conduct of the proceedings.

12. Before I deal with Motion A, I should remark that these proceedings involve issues requiring analysis of the law as to powers of appointment in equity and how far the ancient law governing powers, a lot of which stems from the Statute of Uses, 1535 (Imp) and the modern law of fiduciary obligations can be administered together. This involves at least analysis of the old doctrine of corrupt exercise of powers with the more modern notions of fiduciary duties. I have endeavoured to avoid these matters as much as I can in these reasons by concentrating on the precise matters the subject of the motions.

13. I now turn to Motion A.

14. The motion is in two parts with the second part subdivided into four sub parts.

15. The first part seeks an order that the respective plaintiffs apply for leave to amend their Reply in each case. The second seeks orders that in default of such amendment, the plaintiffs not be permitted to contend that neither the first nor second defendant acted for an improper purpose by reason that Peter was mistaken about material matters. Further that specific parts of the plaintiffs’ evidence not be permitted to be read at trial.

16. I need to refer to the pleadings at this point. I will refer to the pleadings in Frances’ case, as the pleadings in the other case are, for present purposes, identical.

17. The background to the first part is that the plaintiffs complain that prior to 17 July 2009, the third defendant had been the trustee of the Einasleigh Trust. The third defendant was also then the trustee of the Family Trust. The deceased removed it as trustee and appointed Peter because Peter had lent the trust a million dollars. It would seem possible that Peter’s trusteeship was some sort of security for his loan, a difficult concept.

18. A few days before his death, the deceased made a codicil which gave the three 57 of the 72 shares in the third defendant. The other 15 shares were bequeathed as to 7 to Helen and 2 each for the other members of the five.

19. The plaintiffs say that their shareholdings in the third defendant should have given them control of the Family Trust and the Einasleigh Trust. However, by corrupt retirements of trustee and corrupt appointments of new trustees and by unconscionable manoeuvring in the administration and appointment of directors in A & W, their benefit has been stripped from them and seems now to be held for the benefit of the five.

20. Clauses 14 and following of the Statement of Claim allege that clause 8 of the Family Trust Deed provided, in the events which occurred, that on the death of the deceased, his executors would possess the deceased’s power to remove and appoint trustees. However, by deed of variation made 14 January, the third defendant purported to amend the deed by deleting clause 8 and replacing it with provisions which allowed the trustee to appoint the first defendant as trustee.

21. Paragraph 14F of the current version of the statement of claim in each case (the Second Further Statement of Claim) states so far as is relevant for the present motions:

The purpose of the amendment was to:-

(i)   enable Peter and the second defendant to remove the third defendant as trustee of the Family Trust;

(ii)   and then to appoint the first defendant as trustee in place of the third defendant;

(iii)   thus giving control of the Family Trust to the shareholders of the first defendant instead of the shareholders of the third defendant; and

(iv)   thereby subverting the will of the deceased;

….

22. The defence of the 1st, 2nd & 4th defendants pleads as to paragraph 14F is that

They deny paragraph 14F and say that:

(a)   The purpose of Einasleigh Nominees in making the amendment, retiring as trustee of the Family Trust and appointing Uncle’s Joint as trustee of the Family Trust was to procure the appointment of a trustee of the Family Trust that would act properly to protect the assets of the Family Trust and distribute the capital and income fairly amongst the deceased’s children and grandchildren in circumstances where Einasleigh Nominees did not believe that a trustee under the control of Frances and Tiba would do so.

(b)   That purpose was discussed at a family meeting called by Peter and held in November or December 2010 to which Frances, Tiba and Sarah were invited but which they did not attend.

(c)   That purpose was a proper purpose for which the powers in the Family Trust Deed may be exercised.

(d)   Further or alternatively, any wishes of the deceased, expressed in the codicil many years after the settlement pursuant to the Family Trust Deed, cannot as a matter of law bear upon the validity of an exercise of power conferred by the Family Trust deed and

(e)   Further, or alternatively, Frances and Tiba exercised significant and unreasonable pressure on the deceased in the last days of his life while he was sick and vulnerable in order to procure the making of the codicil, so that it did not reflect his true wishes.

23. Particulars were given of (a) which, omitting sub-particulars of B, were:

A.   the knowledge, beliefs and purposes of Peter are to be attributed to Einasleigh Nominees:

B.   Peter believed that Frances and Tiba were not appropriate persons to control the trustee of the Family Trust by reason of his belief in the following matters: ….

….

C.   Peter believed that the shareholders in the new trustee of the Family Trust, … should be [the five], because he believed they would distribute the assets of the Family Trust fairly.

24. The plaintiffs’ Reply to 14F was that, so far as (e) was concerned the fact that probate of the deceased’s will and codicil was granted in solemn form operated as an estoppel against the allegation.

25. One might be forgiven in thinking that the defence pleaded was no real answer to the statement of claim, but that point has not been raised. This seems to be because the plaintiffs consider it throws up the issue as to what was the purpose of the relevant transactions. My difficulty is that both sides are really saying that the purpose was for or not for the benefit of trust and their difference is that Peter is alleged to hold a subjective belief that control by the three would operate unfairly.

26. Mr Harris puts that the defence is actually an admission that Peter had the same purpose as alleged by the plaintiffs, that is to prevent the provisions of the deceased’s will from taking effect and by substituting what Peter thought the deceased in fairness ought to have done.

27. There is a lot to be said that a person’s subjective belief, at least in the absence of evidentiary material that a reasonable person would hold that belief could not turn an improper purpose into a proper purpose. However, that was not argued before me and I will not enter into the point any deeper as the subject is a complex one.

28. Turner LJ, one of the Lord Justices of appeal in Chancery in Topham v Portland (Duke) (1863) 1 De GJ & S 517 at 571; 46 ER 205 at 227 said in a passage that is often repeated,

it is one thing to examine into the purpose with which an act is done, and another thing into examine into the motives which led to that purpose.

29. Mr Harris submits that the materials to Peter’s subjective beliefs are really “motive” rather than “purpose” and thus irrelevant. However, more modern writing, see eg Thomas on Powers (Oxford University Press, 2nd edition, 2012) [9.80] and Snell’s Equity (Sweet & Maxwell, 32nd edition, 2010) p 321, suggest that the actors state of mind is not necessarily irrelevant to the doctrine of fraud on a power. The editor of Snell supported this view by reference to New Zealand authority (Kain v Hutton [2007] NZCA 199; [2007] 3 NZLR 349 at [113], and on appeal; and, Kain v Hutton [2008] NZSC 61; [2008] 3 NZLR 589 at [20]). There are also, as Thomas points out, some decisions which fall outside the mainstream such as Re Wright [1920] 1 Ch 108 and Re Crawshay [1948] Ch 123. I should also mention, for completeness, Re Burton’s Settlement [1955] Ch 82.

30. The adequacy of the defence and the significance of Peter’s subjective belief can be left to the trial or to a later stating of a separate question, it does not actually need to be dealt with on these motions.

31. Mr Herzfeld submits that if the plaintiffs intend to put in issue any part of the defence to paragraph 14F of the defence, they must amend their reply to plead such matter with particularity.

32. If the issue raised by the defence is as I have gleaned it, that is, rival statements as to whether what is said by the defendants to be the purpose of benefitting the trust is established, it does not seem to me that there is any need for more than a joinder of issue.

33. It is true that as a reply has been filed the joinder of issue should appear in the reply in order to comply with the Rules, but that is a mere technicality.

34. I should note that, in any event, the general denial of the defendants in their paragraph 14F, is also defective in that if any particular matter in the plaintiffs’ 14F is denied which might lead to surprise, it should have been specially pleaded.

35. Thus, apart from the technical matter adverted to above, there is no justification for requiring an amended reply.

36. The second part of Motion A seeks an order that the plaintiffs not be permitted to say that Peter was mistaken about material matters.

37. This perceived problem has virtually vanished as Mr Harris has enunciated that his case is that any beliefs that Peter may have had are irrelevant, but, that he is entitled to challenge the evidence put forward that Peter in fact held those beliefs.

38. In my view, on the pleadings, Mr Harris is entitled to take that position.

39. In any event, it is a most serious step to take at a preliminary hearing to deny a party the right at a trial to put forward the material he or she wishes to place before the court. This is only done in the most extreme case and this is not such a case.

40. Part of Mr Herzfeld’s submission is that s 192A of the Evidence Act 1995 (NSW) permits me to take the course he suggested. He is correct in this. However, the fact that I have power to do it, does not mean that I should do it. To my mind it is only in clear cases that I would exercise the power. Experience tells me that it is usually appropriate for the trial judge to make rulings on evidence as it is usually only at the trial that the complete evidentiary picture emerges.

41. Further, in this case, it would seem to me strongly arguable that the evidence which Mr Herzfeld seeks to exclude would be relevant to the issue as to whether in fact Peter held the beliefs that the defendants say he held.

42. However, I must remark that, although I have not spent over much time in the detail of the evidence filed by both sides, it does appear to me that a significant amount of it would have to be rejected at the trial as being in improper form such as people deposing to alleged facts when the basis of their observation of those facts was not stated or seems to be non-existent or bare statements of belief.

43. Accordingly Motion A should be dismissed and, I would think, with costs.

44. Motion B seeks vacation or modification of freezing orders made by consent in 2013. They affect the ability of A & W to dispose of property.

45. Both sides agree that it would be appropriate for the subject property to be sold. The plaintiffs have put forward a series of conditions upon which they would agree to the sales. Those conditions essentially would operate to keep the proceeds of sale in neutral hands or in a position where the plaintiffs would have some control over them. The defendants do not agree and require full control.

46. The onus is on the defendants to show why the consent order should be vacated or modified. The plaintiffs’ complaint is that A & W is a company of which the executors of the deceased’s estate hold 25% of the shares, the 75% holding the plaintiffs say should, were it not for the improper actions of the defendants would be controlled by them. Instead, because of those improper actions, A & W is controlled by directors who have never been elected by the shareholders, have been appointed by the wrongdoers and the plaintiffs have had difficulty in obtaining up to date and sufficient accounts.

47. The only substantial answer Mr Herzfeld has to this is to say that, under its constitution, A & W had no requirement to hold annual meetings to elect directors. That is not sufficient.

48. Furthermore, despite the freezing order, A & W mortgaged property to secure a loan of $250,000 and appears to have used this part of this loan to pay very substantial legal costs not only of A & W, but of the other defendants as well. There is not yet any motion for contempt for breach of the freezing order. It may be it was breached, maybe not. The lawyers for the defendants should seriously review the position and, if they consider there may have been a breach, but only a technical breach, repay the loan forthwith to save their clients the risk of 28 days imprisonment or sequestration of the company assets which appear to be the standard punishment for deliberate contempt.

49. Thus I do not see how I would be justified in modifying the freezing order. I will dismiss Motion B with costs. However, I would urge the defendants to rethink their attitude so that the assets can be sold for the best price.

50. He only thing that I would add is that 4 volumes of a court book arrived in my chambers at about 4:50pm on the day before the hearing. This meant that I had to do my preparation work without its assistance. Mr Herzfeld’s client provided the books and when I asked why they had not been provided earlier, I was told that no order had been made and that it was only very recently realized that I might be assisted by their provision. This is not good enough. If a client is to be charged with the provision of multiple copies of a four volume court book it must be properly prepared and delivered in good time, usually at least 3 working days before the hearing. In any event, it is bad advocacy not to give the judge every possible assistance to make his or her decision in one’s clients’ favour.

51. After delivering these reasons, I modify the freezing order by consent. As to costs in Motion A, I think that there was sufficient doubt as to the plaintiff’s position as to mistake to make the proper order that costs of Motion A be costs in the cause. My preliminary view as to the costs of Motion B is confirmed.

29. The proceedings are almost ready for hearing. The defendants want 12 weeks to complete their evidence. I am assured that the plaintiffs’ evidence is all on. Twelve weeks seems a long time, but as we are fixing hearings for August/September it is not going to retard the hearing date, so that all the evidence of the defendants are to be served no later than 24 June 2015.

30. The matter can go to the registrar's list on 21 April, to fix a hearing date. The tentative estimate is nine days, but I would suggest to the registrar that he or she put the matter in for pre trial directions before the hearing judge some time after 24 June, so that the hearing time can be adjusted depending on what comes out of the extra evidence, and the normal orders for hearing can then be made, which includes the court book being given to the judge at least three days before the hearing.

31. Orders:

1.   By consent I vary the order made in 360672 on 5 December 2013 in Tiba and Sarah and in 360586 on 19 December 2013 in the Frances proceeding by deleting paragraph 3(i) and inserting instead “(i) the payment of reasonable legal costs incurred in relation to producing documents on subpoena or notice to produce and retaining and instructing solicitors to act in proceedings 2010/36817, 2010/370107, 2013/360586 and 2013/360672”.

2.   I dismiss Motion B (filed 20 October 2014) with costs.

3.   I modify the freezing order by consent.

4.   The costs of Motion A (filed 7 November 2014) be costs in the cause.

5.   All the evidence of the defendants is to be served no later than 24 June 2015.

6.   The matter is to go to the Registrar’s list on 21 April 2015,

(a)   to fix a hearing date with a tentative estimate of nine days, and

(b)   to put the matter in for pre-trial directions before the hearing judge some time after 24 June 2015, so the hearing time can be adjusted depending on what comes out of the extra evidence. The normal orders for hearing can then be made, which includes a court book being given to the judge at least three days before the hearing.

**********

Amendments

15 April 2015 - Typographical error corrected in order 1 on Coverpage and order 1 in para 54.

Decision last updated: 15 April 2015